September 20, 2012; QE to Infinity

Kevin: David, there are euphemisms for many things that are unpleasant, and there is a euphemism that we are seeing coming out of the Federal Reserve called quantitative easing, and somehow it creates euphoria in the markets. I am just wondering – is it a euphemism for something pleasant, or is it unpleasant?

David: The way you use language, or sometimes couch a certain term makes you feel better for a certain period of time. A reorganization that a company may go through entails many pink slips, and that is not necessarily a good thing if you are on the receiving end of a pink slip, but it feels better if you have just been a part of the reorganization and when you look at something like quantitative easing, you can get lost in the language. Very simply, it is money printing. Euphemisms change the feel, and frankly sometimes confuse the issue, but it is simply creating money, and in this case credit, out of nothing, to use for a stated purpose. Some would like to call it QE-3.

Kevin: I’ve actually heard QE-Infinity at this point because there were no limits on this one. It’s just, “What do you need?”

David: That’s what sets it apart from QE-1 and QE-2. It is indefinite in nature, and concerning the mortgage-backed securities, they are talking about purchasing 40 billion each month, with no time table given for a wrap-up. Annualized, that is 480 billion a year.

Kevin: That’s just in mortgages, not counting the other things that they are buying, like the Treasuries.

David: That would be a holdover from Operation Twist. If you look at that 480 billion a year, without a time frame, we really have big numbers in play. Is that the way we should read it? 480 billion a year? Or is it trillions, essentially, money printing on an unlimited scale, and for an indefinite time frame, and this is really the sign of the times. The sign of the times for us looks like the number 8 which has just fallen on its side. Kevin, you just mentioned infinity, QE to infinity. That is the sign of the times.

Kevin: When the announcement was made last week, I couldn’t help but sing The Candy Man. The Candy Man gives candy to all the kids, and they can even eat the dishes. He just makes everything tasty and delicious. The problem is, food prices. When people go hungry because of QE-3 or QE-Infinity, it is going to be a different story, isn’t it?

David: Yes, you are talking about a very tangible outcome of money printing, and of course there are other things that go into that. There are consequences of note, that being one of them. And of course, asset classes, which will benefit, and some, of course, which may suffer, as well. We, and the marketplace, are no longer speculating over the European Central Bank’s and the Fed’s announcements. Instead, now we need to consider the course that we are likely to be on over the next 12-24 months.

Kevin: David, what else can they announce? Once you have said, “I’m going to give you everything that you need, without limit,” what else is there? Is there another announcement that is just waiting in the wings?

David: The challenge that both these central banks face is that any wow factor from future announcements is nearly impossible, as “indefinite and unlimited” promises have already been put on the table. Frankly, what is curious, because we are seeing some improvement in economic figures, is why were these commitments, again, indefinite and unlimited, made now?

Kevin: Were they seeing something that maybe is not in print right now? We had the Jackson Hole meeting. What was said behind closed doors, and what were the numbers, really, that they were looking at? Not the massaged numbers, not the seasonally adjusted numbers, and all the different ways that they approach the numbers differently with us than they do, themselves. Is there something that they saw that scared them?

David: Frankly, I think that is exactly the case. Data would need to be looking pretty grim for them to take this kind of measure at this point. The employment number actually improved this last time, it has gone from 8.3 to 8.1. We have a number of things which you could argue, depending on your perspective, indicate progress in terms of recovery. We might take a slightly different view or interpretation of those facts, but I think they were looking at data that would not be the kind of thing that you would want to go to press with, and would not be dinner party banter. The group would need to be macabre if you are really interested in what they were probably looking at. The ECRI, the Economic Cycle Research Institute, put together data and have long influenced and informed the direction of the Fed.

Kevin: Isn’t the founder of the ECRI the professor who taught Alan Greenspan what he knows?

David: There is this lineage, if you will, between the ECRI, through Greenspan, to the Fed, a lingering influence. They would say that we have been in recession starting in June.

Kevin: Wait a second now, the Federal Reserve is not saying this, the Federal Reserve says we are still in an expansion, or a recovery, but behind closed doors are they accepting that there is a recession again?

David: This is my point. We will wait another 6 to 12 months to see what the National Bureau of Economic Research says about whether or not we are, in fact, in recession, but from the ECRI to the Fed, it has already been stated – we have been in recession since June. These are not very well published numbers, for obvious reasons. This is not the kind of thing that you want to bring up at a dinner party. It is a bit of a downer. What do you do for an encore? This is really the question we are asking. The Fed would need to have very good reason to throw everything they can at the market. You may say, 40 billion, that’s not throwing everything at the market, but by making it indefinite, and by not putting a cap on it, you basically have trillions, potentially, in the pipeline. That needs to be clarified. We are not talking about some strange magic. It just is simply money printing.

Kevin: Doesn’t it put pressure on every other central bank in the world to also print money? If we are going to be printing money and devaluing the dollar, we have talked about competitive devaluation worldwide. Other countries can’t compete if their currencies stay strong. What about China? What about the European Central Bank? Does that mean loose policy for those banks, as well?

David: You do have competition on the downside. That’s where you have competitive devaluations. We’ve talked about that many times, and in many contexts you can discuss it theoretically, but we have that in real time today. If you look at risk mitigation and risk management, if the Fed is doing what they are doing now, as of last week, with this third QE, or QE-Infinity, as we will call it from now on, what do you do for an encore? You have played your best tunes, you’ve already come out on stage and played again, and again. You don’t have anything except the oldies, and they are all used up. No one really likes them anymore. What do you play, as a musician, when you are out on stage for that last encore? They have nothing.

Kevin: Is this a sign that we are coming into the end game? Is this an end game move where they are saying, “Look, it’s all or nothing?”

David: Sure. We’re moving toward checkmate for both the Fed and the ECB.

Kevin: What is the market response to this? Does the market sense that we have a long-term gain here, or have they already factored it into the price?

David: No, the market thinks in nanoseconds. We have had positive initial moves higher in the equity markets. They seem to lack any follow-through at this point. One-day wonder, great move, but frankly 1000-1500 points, the recent gains were quantitative easing in anticipation.

Kevin: That was already priced in.

David: Exactly. The last several weeks finally saw precious metals and other commodities move higher, reflecting the Fed’s decision to print. Is this rising tides lifting all boats? This is where we would suggest: not for long, in our opinion. We will discuss this later as we consider the various drivers of other commodities, but there is a difference between the industrial commodities, between the ags, between precious metals, and what ultimately is driving them.

I will refer back to the panel discussion I sat on in January for The Economist magazine’s intelligence unit, discussing what we saw then, and now have even more confirmation of, in terms of these various commodity segments.

Kevin: In other words, you want to be very careful as you are looking at various commodities. You can’t just say it’s going to be inflation to the moon at this point, so everything is going to rise – not necessarily, because we also have slowdowns of consumption, we have slowdowns of production that have to be factored in to certain commodities.

David: The question of what this really signifies, the Fed taking action, is that the jobs picture is worse than the numbers imply, in part because of the duration of unemployment. I think this is a critical variable. It is the longest duration on record of people who have become unemployed and remain unemployed. Obviously, going back to the Great Depression there were more people unemployed then, but actually, for a shorter period of time. You can argue, correctly, that the real world numbers today exceed 15%.

Kevin: A lot of those unemployed drop off the list after a year, don’t they?

David: Exactly, and that is the difference between U3 and U6, we would agree with that. But the larger issue is the time spent out of work, and this is where we are setting records in this particular period, this greater recession today.

Kevin: David, we have talked with a number of people, including John Taylor. We have talked to some top advisors to the Federal Reserve who say that the dual mandate for the Fed is a death mandate for the Fed. In other words, they are supposed to control inflation by creating money, or contracting the money supply, through interest rates, for instance, but they are not supposed to really tap into fiscal policy, what the government should be doing, but the dual mandate came about in the late 1970s, saying, yes, we also want to make sure that you guys control employment and make sure that the unemployment level stays low.

David: I’m not so sure that Congress in the 1970s wasn’t looking for a scapegoat. If it didn’t work, they couldn’t be voted out, and they could at least say, “Hey, we’ve done our part, but listen, it was monetary policy that really messed things up here, and they are supposed to be looking at employment as well. They haven’t done their job.”

Kevin: That is the problem, though, Dave. What if you have inflation concerns right there looming in front of you, and you have high unemployment? What do you do when you are the Federal Reserve and you have both mandates and they are saying no high inflation, and no high unemployment?

David: This is where I think Congress is being judged and found wanting by the Fed. They at least see Congress as doing too little, and perhaps, too late. Therefore the Fed sees its role, and the need to move squarely into the midst of the fiscal policy. This is the second mandate of the Fed, and it has always been the more troublesome of the two, in our opinion. It is the one dealing with employment, which is an obvious political issue being dealt with by a supposedly neutral and nonpoliticized group. You can’t have that. You can’t be dealing with employment issues, and not be in that fiscal context. Independence at the Fed is not supposed to cross the line into politics, but fixating on that second mandate blurs the lines between congressional fiscal policy and Fed monetary policy on the other hand.

Kevin: This reminds me of what we are seeing in Europe right now. The European Central Bank is saying, “We are going to have a monetary system, but we are going to let you guys do your own fiscal stuff.” The problem is that when you have to merge the two, which is what is going on in Europe, it creates a lot of confusion as to who controls what, and when. Nobody really takes the blame for anything, and no one really solves anything, either.

David: We like the Germans’ classical position, which is that inflation is the primary concern of the body controlling the printing presses. They were not always so vigilant. If you look back at German history, in Havenstein’s dream, or nightmare, however you prefer to look it, they learned the hard way that a central bank does best with a singular focus.

Kevin: What you are talking about is the hyperinflation in Germany in the early 1920s.

David: Right. The fact that they have a singular mandate and don’t focus on employment, or on the fiscal side – listen, there is a reason for it. There is a reason for it, and we would do well to learn from it. This is one of the most disturbing elements of what was announced last week, the idea that they would keep rates too low, too long, and keep too much juice in the system too long, that they would err on that side. Bernanke said as much. “We will overstay our welcome. In terms of stimulus, we want to make sure we get out of this.”

I ask the question: What does that say about what nightmarish scenarios the Fed is looking down the path to see, that they would do this now, and not make it a responsive action? This is being progressive, getting out in front a crisis. We don’t have anything in the headlines now that would imply that there is an implosion in the financial system, and yet, the actions that they are taking would imply that they see something of that caliber on the horizon. Why? Because they are using up their last bit of ammunition.

Kevin: The problem is, when you run out of ammunition, don’t you have just a sudden horrible shift in interest rates, making our national debt, our private debt, everything unaffordable, but almost instantly, because the interest rates have been artificially held low for too long?

David: The last thing which the Fed’s decision signifies is that the financial and economic end game is on the horizon. I would suggest that between 36 and 48 months from now we will have cycled through, in fact, encountered and worked our way, partially, if not completely through, a collapse in the bond market, a major move lower in the U.S. dollar, with the consequences of these particular market machinations being most grave.

Kevin: We can talk about markets all we want to, and there are a lot of people who listen who say, “You know, I’m really not in the markets. I own some gold, I own some cash. How does that really affect me?” But the middle classes are the ones who have really paid the price so far on this, and it sounds like they are going to continue to pay the price.

David: Some have, and some have not. The middle class participation in the great recession has been felt dramatically by the ranks of the newly unemployed, and not at all by those still with a job. We have sector-specific, and geographic-specific, unemployment issues, which are acute, which are very painful, not to minimize them at all. But we are still at tolerable levels. I say tolerable because we have yet to see the riots, the protests, domestically, on the scale that Europe and other developing countries have, to date.

As, and when, the U3 number – not U6, but U3, the smaller, more distorted number, now about 8.1% – as and when that exceeds 15%, that will change, along with a dramatic change in social mood amongst rich and poor. We are seeing that contrast played out, but it is largely because of political antics. We have the Republicans and the Democrats playing off against the rich and the poor, and have this great contrast between the two parties. The reality is that we will see the social mood driving that, not the media and political banter driving that, as and when we get above that 15% number.

Kevin: David, you were talking about no riots right now, but CSI, the Complex Systems Institute in Cambridge, has said that we are only about a year away from global food riots, based on what we are seeing here. The time bomb is ticking, according to complexity science, and the people who are looking at more than just one variable.

David: I think it is important to note that when you look at the budget, this is the end of a 4-year spending term, and this is very important to note. Historically, you get a lot of government spending the last year of an election cycle. Why? I wonder why.

Kevin: Have we ever seen it not be that?

David: “What have you done for me lately?” You need to have a very tangible remembrance of what the party in power has just done for you this year, and so you generally see a peak in government spending in the last year of a presidential cycle. What that implies is that moving into 2013, government spending is a bit of a restart, so not only the fiscal cliff, but natural budgeting, is going to be skinnier as we move into 2013, and with that, you can assume a much slower economy.

If you look at 2013, I think people are going to remember the 13 in 2013 as something like a Friday event, the kind of 13 that you don’t like, and is a little bit gory.

Kevin: A lot of people are going to wish that the earth did end on 12/21/12.

David: (laughter) I’m afraid so.

Kevin: But the consequence is already being felt in the dollar. You travel the world, you know what these trips are starting to cost you because of the decline in the dollar just recently.

David: It is interesting that my dad and I were talking about this in recent days. Compared to the euro, a 6-7% decline in the U.S. dollar from recent highs, but the decline is more dramatic when you look at off-grid currencies, if you are talking about the Philippines currency or the Indonesian currency. Of course, this means a lot to my dad for obvious reasons.

Kevin: Well, because of the orphanages. You have U.S. dollars going in to help support these orphanages in Indonesia, and in the Philippines, and in India, and if the currency isn’t keeping up, then they are buying less and less rice with U.S. dollars converted to their currency.

David: That’s exactly right. Ironically, rates across the board have also moved higher.

Kevin: You are talking about interest rates.

David: Exactly. This is a consequence of bonds being sold and risk assets being purchased, which the Fed, of course, seems to be confused over. On the one hand, they want to hold rates lower, allowing for what, in their view, will be a complete recovery in housing, and a sort of quiet subsidy to the banking sector. On the other hand, they want to improve asset values and create a wealth effect, thereby emboldening consumers. We did see the one-day move higher in equity prices on Friday, yet rates are moving higher, as well, contradicting the stated purpose, which is to bring rates lower and support the return to growth in housing.

Kevin: We have been talking about currencies and different valuations for currencies, interest rates, but there is still the real thing, which is the commodity market. You said you would talk about that a little bit, because not all commodities behave the same all the time.

David: Yes, I think this is an area where confusion abounds. While the dollar cost of commodities is rising in the face of dollar purchasing power being diminished, good old supply and demand is ever the larger factor in commodity pricing and this is what you have to remember. Supply and demand fundamentals only take a back seat to currency devaluation when devaluation is in that super or hyper mode.

Kevin: So with hyperinflation it doesn’t matter what the demand is, everything goes up.

David: Everything goes up. That is the crackup boom of von Mises language, and what we don’t have is a crackup boom today. What we do have is the potential for supply and demand destruction in certain areas of the commodities space while you have massive demand increases and limited supply availability in others.

Kevin: So you have to look at each commodity, specifically, and determine what the supply and demand factors are as they go into the pricing.

David: Right, so you are really contrasting the industrial commodities, the ags, and then the precious metals, which have demand dynamics that are not always economically dependent. In other words, they can be noncorrelated or negatively correlated. This is back to the gist of the work that we did with The Economist magazine earlier this year. With the ags, of course, demand is relatively constant because people eat the stuff, and there are not that many alternatives. If you are used to eating rice, it is not like you can just switch to what is equally available and abundant when you are going to the store. Rice is rice, is rice. You need it. If it goes up you get angry, and you march on the streets. The same with corn and wheat, primarily, and soy beans, to a degree, as well. Those have relatively constant demand and what impacts the price is supply disruption, and of course, this year is a classic case in point, with the weather we have had. You can have that exacerbated by currency devaluation, but again, that is a thin layer of influence. Supply and demand, one of those two variables, supply on the one hand, or demand on the other, is still the critical element.

The industrials are very much demand-dependent. This is, I think, one of things that people neglect. We have had a huge growth in supply over the last 5-7 years to meet growing demand in China. Actually, we went from very low supplies and stagnant research and development projects, if you want to put it in those terms, or just go dig in the dirt and find new stuff projects, by a lot of the major minors, they have changed that over the last 5-7 years. They have brought a tremendous amount of supply online, whether you are talking about iron ore, or aluminum, or copper, and guess what? Now there is an over-abundance of supply, and demand is beginning to wane, so we have the worst of both worlds, over-supply, and under-demand. That is why we see some vulnerability with the industrials.

Kevin: David, you talked to Michael Pettis when you were in China. He writes that there is something coming because of China that is really fascinating, and that is, there is a lot of demand right now being utilized by China for infrastructure and building and that type of thing, so it is honest to goodness demand. But they are also hoarding. They are building a supply, or an inventory, of these commodities, and at the point that they stop building that inventory, if their demand slows down because their economy is slowing, and they have a huge overhang of inventory, not only does it cut out the normal supply, but there is no need for them to buy anything else for years.

David: That’s right. Kevin, next week we are releasing the second part of our DVD series from this year, and it is on Asia, and this is one of the issues that we deal with, so as a preview of coming attractions, what a lot of the Chinese firms have been doing, in stockpiling or creating large inventories of commodities, is that they have been creating these large inventories and then borrowing against them, so they are leveraged. That, I think, is an element which is important, because when you begin to compromise the balance sheet by co-existing debt with equity in the case of a large inventory on the one hand, and debt set against it, now all of a sudden, any price volatility at all puts you in a much more precarious position in terms of your balance sheet.

Kevin: You are running a dangerous game.

David: Exactly. It is not just a question of buying it because they think the price is going to go up, and they therefore want to buy it cheap to be able to use it and have a lower cost basis, they are actually borrowing and getting ready cash from that stockpile. They are doing that with heavy equipment and some other things, too, and we cover that in detail in the second segment of the film, which you can watch online here in the next ten days.

Kevin: David, shifting gears here, I know you are just getting back and you have a whole week’s worth of appointments with clients who are wanting you to look at their stock portfolios. Let’s talk about the stock market for a moment. We have talked about commodities and currencies, and interest rates, but I would like to hear about stocks and bonds. Is the market something that is trading on fundamentals? Is it hopeful for higher profits and cash flow? Or is this something that is just trading on wishful thinking from the Fed?

David: Stocks are not trading on economic fundamentals. They don’t reflect the business environment that we are in today. They do reflect the promise of promiscuous liquidity flows from the Fed.

Kevin: The Fed has already promised that.

David: Exactly. How much money do you want? You can have it. How much more? You can have that, too. And they are not alone. It is the ECB, it is the BOJ, the Bank of Japan, it is the BPOC to a lesser degree, they haven’t promised anything big lately, and what we see is central banks doing the same thing in concert, and it has distorted pricing, it has distorted expectations, and frankly, it has made the stock market a very dangerous place to be, dangerous in the sense that when you look at earnings, they are, interestingly, at all-time highs. When earnings are at all-time highs there are a couple of things of note. You could say: Okay, they are at all-time highs and going higher.

Kevin: You would say that is a reason to own, but you would also say, if they are at all-time highs, what else can we be given on that front, as well?

David: And the question, too, is how did we get here? Part of it is productivity gains, and a part of it is restructuring the balance sheet, eliminating equity, and adding more debt, at these low, low levels. You retire a part of your equity, and that increases your earnings per share considerably. When you are taking millions and millions and millions of shares off the market, now your earnings, on a per share basis, divided by a smaller number of shares, have just improved dramatically, too. There are elements in which we are here on an engineered basis, both by the CFOs of various Fortune 500 companies, but also the financial engineering directly from our central bank.

Kevin: As long as that engineering, that artificial element, continues to work, then the stock market may continue to stay up, but as we talked about with the bond market, at some point we could have an instantaneous repricing, a one-day event, if the artificial stimulation isn’t working.

David: That’s what we saw in recent days with the oil market, in one day, actually a three-minute collapse in the price of oil. And why? It was because a computer read the wrong three letters, and implied that there was going to be a release from the strategic petroleum reserve, the SPR. Those three letters were somewhere in the Internet ether, and this particular algorithm, this computer, read SPR, got ahead of itself, and started liquidating oil contracts, liquidating oil contracts, liquidating oil contracts, and that fed on itself. This is a frail market. There is no mind behind it. It is preprogrammed. It is auto-pilot, moving toward a set of mountains, not realizing that an adjustment needs to be made, and somebody needs to take the controls.

Kevin: Actually, the algorithms are controlled by the guy who controls the news. Bloomberg is the one that sells a lot of these investment algorithms to the investment firms that read that thing wrong. These computers are cycling through the news and continuing to buy or sell based on what the algorithm says is either positive or negative for that market. How many people who just have a family and want to have a savings account so that they can have retirement – how can they compete with that?

David: They can’t compete at all. That’s one of the reasons why you are seeing mass exodus from the equities markets because people just say, listen, it’s not only for the professionals any more, it is for the professionals with super computers. If you don’t own a super computer, how can you compete? That is not altogether true, but certainly, there is an element of it where you are at a disadvantage if you are a day trader against the super computer.

Kevin: Let’s say I’m a guy who says I don’t want stocks right now. I’m going to move into bonds. That’s the traditional move from a person who says, “No more equities for me, I’m just going to go ahead and get some guaranteed interest.”

David: I think the only way of knowing if we have already passed the turning point in the bond market, with rates going higher and bond prices coming down considerably, I guess we will know that turning point after the fact, as we are looking at it in a rear view mirror. What we are comfortable saying is that in light of the indefinite commitments, those infinite commitments from the Fed, by 2016 we will see a bond market collapse in the U.S.

The dollar, of course, is a different story, but a similar story. The downtrend is resumed. This is consistent with the last QEs. We had Quantitative Easing 1 and Quantitative Easing 2. The dollar took it on the chin both times. Equity markets rallied 20-25% in light of the Fed infusion. Of course, we had the pre-rally, you could call it, getting us to 13 and change already. We don’t know whether it will see another 20-25% because remember that QE-1 and QE-2 came at a time when the equity prices were down 15-20%, and so there was a recovery fomented by the initiation of QE-1 and QE-2. In this case, there was no down day in the equity market, there was no recovery story that was needed. We were at 13,300, 13,400 on the Dow when this was announced. So where do we go from here? It is just more money in the system.

Kevin: David, we have talked about all these different investment categories except for money, itself. When you create QE, that is really not good for your money, is it?

David: It’s not good for any of the money that was existent before that point in time, so if you are a cash-holder, and there is more money printed, you have just seen the value of your money diminished because of the dilution. There is now more of it, and it is worth less as a consequence. So what we have is this promise last Friday of an infinite commitment to recovery. While that is impressive, and I appreciate the thought and the feelings behind that, what we really need to be concerned with are the knock-on effects of too much money printing. And what we are likely to see over the next 2-3 years is a continued growth phase in the precious metals market, a continued decline in the U.S. dollar, and really, this precarious place of the stock market not behaving on the basis of economic fundamentals.

Ultimately, it is not the number of widgets that are being sold, but it is the kind of financial engineering that is allowed through low interest rates and infinite liquidity. Is that what you are betting on when you buy a Kraft, a General Mills, an Illinois Tool Works? Don’t you really want to buy a trend in the larger economy, which is a growth-oriented trend, where you know, that you know, that you know, that consumers are back? This is really where we are dealing with artificial realities. It is a very dangerous place out there.

Kevin: David, you just walked in from about a ten-day vacation with your family. You were with your father and your mom, as well as the rest of your family. You had a handful of financial newspapers that you got while you were there, and you had them completely marked up. There were a couple of articles that you threw in front of me as I was sitting here waiting to record. Do you want to mention those?

David: I have to. I have to because, take the time, if you are listening to this, to read these articles. One is in the weekend edition of The Financial Times, by John Authors. The title of it is “The Fed Sets Its Sights on Infinity and Beyond.” One of the things that you will notice is a chart which prices the S&P 500, now at all-time highs in nominal terms, and prices it in gold terms, down 61% from peak prices, just to say, what is the reality we are dealing with here? I think John Authors does a good job identifying some of the fundamental concerns that I have, that we share as a firm, about the Fed’s activity and central bank activity today.

Kevin: That was the Wall Street Journal article that was written partially by one of our guests, John Taylor.

David: Exactly. This is a John Taylor article – George Shultz, Michael Boskin, John Cogan, Allan Meltzer, and John Taylor. The title is “The Magnitude of the Mess We’re In,’ Monday, September 17, Wall Street Journal.

Kevin: Don’t read it before bed.

David: No, I wouldn’t, because frankly, what they are doing is bringing to a larger public conversation, things that we have been discussing here on the program for the last 6-12 months. I look at this and I say, “Okay, great, now you know the direction of gold.” If I were reading this article and was a nay-sayer about owning precious metals in this environment, do you know what I would be doing right now? This has the imprimatur of the elite, in terms of the academic elite. These are the establishment.

Kevin: These are presidential advisors.

David: What you have is the elite saying to the elite, “We know what lies ahead. This is ugly. If you want to know the debt picture for the United States, if you think it’s bad, forget about it. It’s far worse than you can even imagine.” Essentially what you have in the announcement on Friday from Ben Bernanke, QE-Infinity, is the future course for precious metals for at least the next 2-3 years, or until they change course. That is very interesting, and cannot be ignored.